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More Links of the Day, Kodak version:

– During a bankruptcy, it’s not uncommon for CEOs to get big bonuses. The Wall Street Journal lists a number of chief executive officers who made out like bandits while laying off workers, closing factories and watching their companies sink into financial oblivion.

For example, Lear Corp. filed for bankruptcy in 2009. It’s CEO got a bonus of $5.4 million and stock worth $11.78 million when the company emerged from bankruptcy.

There’s a federal rule designed to curb such payouts, but corporations have found a way around it through special incentive packages. Here’s an excerpt from the WSJ article, which is behind a paywall:

By examining court documents and regulatory filings, The Wall Street Journal was able to determine the pay of executives at 21 of the 100 largest companies that recently went through bankruptcy. Together, the chief executives of those firms earned more than $350 million in salary, bonuses, stock grants and severance for the periods their companies were under Chapter 11 bankruptcy protection or just afterward.


The median compensation of the 21 CEOs was $8.7 million—not far off from the $9.1 million median compensation in 2010 for CEOs of Standard & Poor’s 500 companies, according to data compiled by Kevin Murphy, a University of Southern California finance professor.

There is much speculation about the future of Kodak’s CEO Antonio Perez. If he survives the company’s trip through bankruptcy – it’s possible creditors will force him out – details about his compensation will be filed with the court. The judge would have to approve any incentive packages. But as the WSJ noted, there is precedence for rewarding CEOs that helped their companies fail and then come back to life.

– Kodak asked the bankruptcy court’s permission to pay $40 million to a select group of vendors. In a court filing (read it here) the company notes it has 2,000 vendors who are owed $332 million. The vendors Kodak wants to pay now are suppliers of raw materials and chemicals, as well as information technology services. Kodak calls them critical. Law 360 reports, in an article behind a paywall, the judge postponed a decision on the request:

The pushback from the judge and the ensuing delay are notable because motions to pay critical vendors in large corporate bankruptcies are often granted right away, in part because when key vendors don’t get paid they might threaten to halt delivery of important goods and services that will allow the company to keep operating.


There are plenty of reasons for judges to be cautious about granting such motions. In particular, they allow the critical vendors — who would otherwise just be unsecured creditors — to jump to the very front of the line.

While the rest of the unsecured creditors will have to wait — possibly for years — to get paid back some of what they’re owed for prepetition claims, critical vendors who are plucked from the bunch get their money before the case even really gets underway.

– Bankruptcy has a human toll. The Harvard Business Review talks about the pain shared by workers and a community. The article quotes former Xerox CEO Anne Mulcahy:

Anne Mulcahy, the former CEO of Xerox, understood how devastating a bankruptcy would be to her employees. In 2000, when her advisers recommended that Xerox file for bankruptcy, she said the following:

“You just don’t get it. You don’t understand what it’s like to be an employee in this company. To fight and come out and win. Bankruptcy’s never a win. You know what? I’m not going there until there’s no other decision to be made. There are a lot more cards to play.”

Mulcahy’s concern about employees paid off. Her conviction carried Xerox through four years of struggle to undeniable success.

– Readers of Rochester Business Journal are divided on whether Kodak can emerge from bankruptcy.

– CNN looks at the success of Kodak spinoff, Eastman Chemical.

3 Responses to Payday for Perez?

  1. Remember that if the vendors are local and they are not given priority that though there won’t be corresponding layoffs at Kodak there definitely WILL be corresponding layoffs at the vendors. In many cases if the vendors are small businesses, an action like this where a major client goes to bankrupcy court could easily put them out of business, putting the entire company on the street. As I said when they first announced this, it’s not just the company and it’s employees that suffer here, it’s the vendors and their employees too. Usually worse than the internal resources.

    • Which, of course, higher costs for the vendors and them on back to you again. Vicious cycle if you don’t nip it in the bud. Thanks for sharing the insight Lee, I miss the details like this sometimes.
      Also, it’s great that we have laws to curb those payouts to CEOs whose companies are in bankruptcy, but wouldn’t it also help, in this information age, to have laws making it easier for shareholders to vote on high ranking execs contracts?

  2. Note to the bankruptcy judge: If you want to save Kodak, which I have faith that you do.
    1) Abolish the lucrative severance policy currently in place for voluntary and involuntary separation (that’s right they get richer if they resign or get fired!) (see for yourself, page 190, page 194) http://investor.kodak.com/phoenix.zhtml?c=115911&p=irol-reportsannual
    2) Get rid of Perez and Faraci (and all the other HP rejects), the Board (that was strategically selected by Perez) before they fire-sale everything left in the George Eastman footlocker. Every single day he is left at the wheel another Kodak item will be gone. And all of these items still have/had potential with the right CEO.

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